Having second thoughts about four plex under contract

25 Replies

King County, WA. 550K purchase price. Only comp available as well as brokers report shows one similar four unit selling for 50K less. Tenants seem decent but low end. Deal seems to cash flow less and less the more I look into it.

Rents(under market due to older but decent kitchens and bathrooms): $4,250 total.

Mortgage payments including insurance and taxes (earthquake insurance): $2,800 a month.

Reserves $800 a month.

Water/sewer/garbage: $500 a month proforma...

Law mowing: $200 a month. Just found out today the owner does this himself right now...

So basically $50 in the hole each month other than $500 a month principal pay down. UNLESS I remodel the kitchens and baths and charge higher rents. I might be able to get $1,500 a month then per unit. Maybe...that's what similar places with updated finishes go for. 2K a month cash flow in that scenario.

Also, I wasn't too pleased with the tenants. A couple copped attitudes about me wanting to look inside. Heck the listing agent had an attitude about it. I guess I'm supposed to enrich him and the seller buying a half a million dollar property without even looking inside.

Inspection panned out OK so far, but I won't have the full inspection report until tomorrow morning.

Bail while I'm still in the inspection period or move forward?

For what it's worth, 40 minutes even further south of the big city, similar properties in gang areas go for the same price and pencil out the same. Then again the only comp I could find for this went for less than this place.

I'm on the fence with this place...If I could get a 50K price reduction from inspection, I'd be more likely to go for it, but as it is, it seems like lower end tenants with attitude, no cash flow, and a lot of risk. Then again everything in my market is looking like that, so I will have to sit on the sidelines to add to the portfolio if I back out. Give me your thoughts please....

First, if it doesn’t cash flow it’s not worth it. Don’t throw good money at bad deals. However, if it doesn’t cash flow because rents are too low due to deferred maintenance but catching up on maintenance and raising rents to market value puts cash flow back where it should be then that’s different.

Second, if comps are $50 lower then amend your offer to no more than market value. Most likely it won’t appraise anyways if comps are what you say. Maybe you should take a little more time to learn your market if you are struggling to properly estimate values prior to making offers.

Finally, is this an on or off market deal? If it’s an on market deal and there don’t appear to be many on market deals that doesn’t mean the deals aren’t there. It simply means you aren’t looking in the right places. Go to REIA meetings and start networking to find reputable wholesalers and let them know what you are looking for and where you need to be on them. Learn how to do yellow letters, door knock, call for rent listings and ask if they have properties they want to sell, etc. It might take a while at first but if you are patient and put in the work the deals will eventually come.

@Jack B.

From just a few things you mentioned, seems like this is a disaster waiting to happen.

No real comps to speak of (I wouldn't count just the 1), not to mention it was $50k less.

Tenants who are suspect. 

Listing agent having an attitude towards a potential client. 

$200/mth to mow the lawn? Owner's definitely gone bonkers. I'm in NYC and I pay $80/mth. 

Negative cashflow; If appreciation was there, it might justify it (I don't know the area so I can't say for sure).

So basically they have it listed as an A priced property, with C/D class tenants...   

Even with a $50k reduction, I wouldn't touch this even with a 100 foot pole

Originally posted by @Johnny Kang :

@Jack B.

From just a few things you mentioned, seems like this is a disaster waiting to happen.

No real comps to speak of (I wouldn't count just the 1), not to mention it was $50k less.

Tenants who are suspect. 

Listing agent having an attitude towards a potential client. 

$200/mth to mow the lawn? Owner's definitely gone bonkers. I'm in NYC and I pay $80/mth. 

Negative cashflow; If appreciation was there, it might justify it (I don't know the area so I can't say for sure).

So basically they have it listed as an A priced property, with C/D class tenants...   

Even with a $50k reduction, I wouldn't touch this even with a 100 foot pole

Yeah, you hit all the points. And I don't want to bank on appreciation. The more I learn about the actual expenses for this property the lower the cash flow has gone. As of recently it went down to zero. So basically I'm gambling on appreciation, with crappy tenants, asbestos, etc. 

I will say if I spent 50K on kitchens and baths (shouldn't cost too much to upgrade these) I could charge a lot higher rent. But we are entering a slow down, and I might  be better off waiting until next year to make offers to desperate sellers who panic sell thinking it's the same crash as 2008 already.

For now I've asked for 50K reduction in price. Doubt I will get it, and I hope I don't. Though you're probably right, I should just say the inspection was unsatisfactory. I mean, the foundation had clear signs of issues that they had repaired, even installing post/pillar foundation in the crawl space. A lot of things about this deal seems off to me as I dig deeper and deeper.

Originally posted by @Johnny Kang :

@Jack B.

... 

$200/mth to mow the lawn? Owner's definitely gone bonkers. I'm in NYC and I pay $80/mth. 

... 

 In NYC, your lawn might 10 ft by 10 ft or 20 ft by 20 ft; the lawn mentioned in the OP might be 1/2 acre - so you can't just arbitrarily say the number here for lawn mowing is off.

Originally posted by @Steve Babiak :
Originally posted by @Johnny Kang:

@Jack B.

... 

$200/mth to mow the lawn? Owner's definitely gone bonkers. I'm in NYC and I pay $80/mth. 

... 

 In NYC, your lawn might 10 ft by 10 ft or 20 ft by 20 ft; the lawn mentioned in the OP might be 1/2 acre - so you can't just arbitrarily say the number here for lawn mowing is off.

 True, the lawn is actually close to half an acre, the lot is half an acre so subtract the house and the driveway from that and most of it is grass.

Originally posted by @Johnny Kang :

@Steve Babiak

LMAO Great Point! 

I didn't even think about that. We NYers, we think the world revolves around our world view. LOL

Wow, I wish I would have low balled them even more, they took my request for 50K price reduction....I am adding to the inspection response verbiage that I want to also review the leases and have an additional 3 days to back out to give me time to review the leases. I also have an email into a contractor I've worked with to see what it would cost to update these units a bit.

Originally posted by @Johnny Kang :

@Steve Babiak

LMAO Great Point! 

I didn't even think about that. We NYers, we think the world revolves around our world view. LOL

In NYC, mowing 1/2 acre would probably run like $200 per visit ;)

Because prices in NYC are exorbitant ...

@Jack B. You’re not at the 1 percent rule so I can almost guarantee with the added expenses of multifamily (like lawn care, water, etc) you’ll likely be cash flow negative.

Wow, @Steve Babiak seriously? You having a bad day or something, you feel like you need to verbally snipe at someone today?

I'm fairly good about letting things roll off my back, although I've seen this kind of belittling comments from so called "seasoned" investors on BP more times than I would expect from people who, one would think, would have some standards, given how they've "succeeded" in business. 

BP should have a 3 strike rule with people like that (but I digress). So I kept it light, despite your initial snide comment. Like, "eh, just let it go." Heck! I even gave you a vote, man.

But for some reason, of all the things I pointed out in response to the original post, you feel the need to keep harping on that one thing I mentioned, like you just have to keep beating on a dead horse. 

So is this what you teach your kids? To try to bully people, if you can? If they're an easy target, for seemingly an honest different perspective they have? (again, you having a bad day, bro?)

You don't know me, so don't get sarcastic with me. And if you've done it twice on this thread alone, with your 13k posts, God knows how many times you've done it to others. 

Keep your attitude to yourself, cause I'm not the kind of person who rolls over and plays dead. Got it?

Have a good evening. 

Any opportunities to add more value than kitchens and bathrooms? Is there opportunity for additional bedrooms, adding storage, things like that? Some photos would be nice to see the general condition of the place. 

Thanks, though I backed out of the deal. The so called realtor (this is all documented in multiple emails) told me we should add a lease term review to the inspection response in addition to my discount request. He said that they would take the discount request, but that we should include a 3 day lease review, hence my previous post. Then when I asked him to send me the 35R to sign and make it formal, he said they wouldn't take a discount.

As a result I told him to cancel the deal then, marking the response/inspection as unsatisfactory. Then all of a sudden he said he thinks they would accept 10K discount, so let's try that.

I told him that's not what he told me before, as such to cancel the deal as I've lost trust in his integrity. THEN the agent tells me that he was going to send me the 35R with the 48K discount I had originally asked for and I should sign it. I called him on his changing story again. We went from they would not accept a discount request, to 10K discount request, back to full discount request.

Then he dragged his feet on sending the 35R AND told me I needed a doctor!!! To top it off, this liar sent an email to the listing agent and told them he told me they would accept the discount but that I won't play ball!!!!

I forwarded all of the emails to the listing agent and this idiots agency. I don't recommend doing business with Ravichandra Sriram or Kelly Right Real Estate. From what I've read when I went to leave a negative review, the owner is part of the problem so I don't expect much from these clowns...This is the second bad experience in the two times I've tried a discount brokerage where I get part of the money back. I've had better luck representing myself buying AND selling real estate than working with these jokers.

The house had major foundation damage and a rotting roof sheathing as well as asbestos and electrical issues. I guess I'm just supposed to not only over pay for the property but pay for tens of thousands in repairs out of my own pocket so these clowns can get their commission...

To top it off the listing agent has been a blithering idiot as well. I wanted to do the inspection Sunday so I could be there for all of it. He said no Wednesday so as not to disturb the tenants. Then when I get there Wednesday for the inspection all of the tenants are there and the listing agent didn't want me to go in. I got upset as you can imagine as I had told him before I expect to see inside EVERY UNIT and that I'm not  buying a half a million property without verifying the interior condition myself. 

It's been like pulling teeth with these clowns. The real estate industry really needs a change, a higher barrier to entry than a high school diploma and 90 hours of online training. This is a complete JOKE.

Yup, you dodged a bullet on this one. Sometimes having a deal fall through is the best thing we can have happen - this sounds like a money pit waiting to happen. 

You needed to do a lot of this work prior to offering on the place. Either you or your representatives need to walk through every single unit, review every single lease, and get documentation on every expense the landlord AND tenants are responsible for. I'm not sure how you can come up with an offer amount until all of these things are known. Yes, there could be surprises at inspection, but utilities, lawn services, and leases should not be part of that.

Originally posted by @Anthony Wick :

You needed to do a lot of this work prior to offering on the place. Either you or your representatives need to walk through every single unit, review every single lease, and get documentation on every expense the landlord AND tenants are responsible for. I'm not sure how you can come up with an offer amount until all of these things are known. Yes, there could be surprises at inspection, but utilities, lawn services, and leases should not be part of that. 

That might work in small town Iowa, but not in Seattle, the #1 market in the country where each place has 20+ offers the day it hits the MLS. Also, not one apartment complex I've seen in 10 years allows you to look through each unit, review leases, etc. until under contract...

Have you ever bought an apartment complex???

You said it was a 4 plex. Now we're talking about not viewing apartment complexes? Ok. Don't walk through the units, don't review the leases, and don't review the expenses. If that's how Seattle operates, I wish you the best of luck. I truly do. I hope everybody finds a great property.

Originally posted by @Anthony Wick :

You said it was a 4 plex. Now we're talking about not viewing apartment complexes? Ok. Don't walk through the units, don't review the leases, and don't review the expenses. If that's how Seattle operates, I wish you the best of luck. I truly do. I hope everybody finds a great property.

It's still an apartment complex, and in a decade I've never seen a seller who allows potential buyers who aren't even under contract to go through their tenants leases and units. Again, do you own property? Let alone an apartment complex? You didn't answer the question. I'm guessing you didn't answer it and made the suggestion to review all this stuff before making an offer because you've never owned property before at all.

I've looked all over the country and I've never seen anyone allow what you are suggesting. Maybe small town IA. But certainly not in big cities where competition is fierce. 

No, that's not how Seattle operates, but any accredited investor which I can tell you are not, knows that apartments won't allow you to do all of this until you are under contract. Hence why I couldn't view the units, do an inspection or review the leases until I was under contract. But go ahead with your straw man argument claiming that I did absolutely no due diligence. The fact of the matter is you clearly have no experience in apartment investing and very little experience investing at all. Experienced investors know sellers don't allow every random person off the street to just come and review tenants information and walk through their units....

Edited to add. Oh, I see you own a single duplex you bought recently...you have no experience with actual apartment investing AT ALL which is why you don't know that your suggestion doesn't work anywhere in the country....Sigh, when you own only a single duplex in small town IA, then talk down to experienced millionaire investors who actually know what they are doing....then get schooled.

Go ahead and find an apartment complex that allows you to review tenants information and walk through units before you are mutual. I'll hold my breath...

And I've never seen a 4 plex referred to as an apartment complex in "small town Iowa". I always go through every unit and get all details of the lease before I make an offer. You seriously don't walk through the properties you're about to buy? Ever? Interesting. How else would I even know what to offer? How else would you know if the tenants are locked into long leases at $100 a month?! I also get an estoppel certificate. In "small town Iowa"  we have multi family houses and real estate and everything, and we make offers after due diligence. Let's hope none of us make the mistake of spending half a million dollars on something we don't want. BTW: "Small town Iowa" has a population of about 650,000 in the metro area where I live. And yes, we also have some delicious sweet corn if you ever visit. 

I currently own a duplex and a sfh where I live. I've lived all over the country and have owned and sold multi families and sfh's for the past 24 years. I've never bought a place without seeing it or knowing my expenses. Never. My BP info is since I've joined BP. It's ok you spied on me and took a snap shot of a moment in time. I've been a part time investor since my mid 20's, and also have a day job that I do quite well with. You are clearly insulted that you almost got burned on half a million dollars. You're feeling your oats and lashing out. That's your problem to bear and your insults to make. For an "experienced millionaire investor" you sure seem upset about a major mistake you almost made but managed to squeeze out of. 

And, I never said every random person off the street. I have financing, I make appointments to see multi families (looking for more right now), I have a realtor, and if I look at a house and crunch the numbers, I make an offer. And a 4 plex still isn't an apartment. 

Your method? Not view property, not review leases, not review expenses, make a bid, pay for an inspection, ask for information, get out of bad deal. 

I hope if you have investors that they are on BP and know who they are dealing with. I made one comment that clearly hurt you. I apologize. Or, I would have, but you got personal. I'm comfortable with the way I do business, it just isn't the way you do business.